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Friday, 28 December 2012

If you're sitting in your office in the period between Christmas and New Year with little to do and you're interested in finance, then an interesting way to waste time is the great Bloomberg Video series - Game Changers.

The series covers entrepreneurs and giants in the worlds of business who have changed the way in which they changed the industries that they have worked in. Most of the series that I have been watching involve business people however the series is much more broad than this - it also covers authors such as JK Rowling, political commentator and comedian John Stewart and singer Jay Z. I confess that I found the John Stewart profile fascinating but the others were not really my cup of tea.

You can visit the main site here (all the videos are free) however I have embedded below a few of the clips (which are hosted on YouTube as well). To be honest, I would not really browse YouTube for these clips as it comes with advertisements while Bloomberg is almost advertisement free. Each of the videos is between 25 and 50 minutes in length. The ones I found most fascinating were not the ones whose stories are well known (e.g. Warren Buffett and Steve Jobs) but rather those who we know are famous but are a little more obscure (such as the Koch brothers).

A selection of my favourite videosWarren Buffett

Rupert Murdoch
I could not find a version I could embed of the Game Changers episode on Rupert Murdoch so I have included a link to it here.
What I found fascinating when I watched this episode was how much Jeffrey Archer, the renowned novelist, had based one of the two main protagonists in his book The Fourth Estate on Rupert Murdoch. If you have some free time and want to read a fictionalised account of his life and his rivalry with Robert Maxwell then I suggest reading that book.Koch Brothers
As mentioned above the episode on the Koch Brothers was one I found fascinating because I knew so little about them. Like the Rupert Murdoch episode I could not find this episode on YouTube so have linked to it here so you can watch it.

If you find any other episodes that you think are worth watching please let me know about them in the comments below

Monday, 24 December 2012

It is Christmas tomorrow and I just wanted to wish all of the readers of this blog (and anyone else who happens to stumble on it) a very merry Christmas. Regardless of what you are doing or whether you are having fun in the snow or standing around in shorts (I'm in Australia remember), I hope you have a happy safe and enjoyable Christmas.

I thought I would also do one last plug for Christmas giving. Christmas is a really hard time for many people who are less fortunate and I just thought that I would give a last minute reminder for anyone who has not given this year yet that (assuming you haven't maxed out your credit card on gifts and merriment) that it is a great feeling to give something to someone you don't know for absolutely nothing in return (not even a hug).

There are so many charities that do an amazing job at this time of the year but if you can't be bothered brain-storming or looking for last minute ideas here are a few:

The Salvation Army

Many stores do gifts for those less fortunate (in Australia you can pop down to K-Mart and their wishing tree)

St Vincent De Paul Society

Those are a few that I have donated to in the past and who I know (from past experience) do a great job. If none of those take your fancy then just Google 'Christmas Appeal'. It came up with hundreds of charities I had never heard of who may appeal to you.

Tuesday, 18 December 2012

In this post I will cover how to think about setting your financial goals for 2013. In case you're wondering why I'm writing it so early, it is because you should spend some time thinking about what goals you want to achieve for the year. My actual financial goals will probably be set closer to the new year however I am already thinking about what I want to achieve over the year.

What should your goals cover?
Many people set their financial goals as purely a savings and investing goal or target. I think this does only half the job. I think to set proper financial goals you need to think about everything in your life which relates to money and then set your goals according to this.

Your goals should therefore cover

Savings

This is that amount which you put away for a 'rainy day' or money for which you may need in the short term (e.g. for a holiday or big purchases)

Investments

This is money that you are putting away for the medium to long term. This money can have a goal (e.g. a deposit for your home) or be for some future unknown purpose (e.g. retirement)

Personal expenditure

You should think about setting goals for amounts that you want to spend on ordinary day to day living - this should include things like rent, utilities, entertainment, clothing etc

You should also include those big expenditure items that you want to spend on during the year. For example in 2013 I know I want to upgrade my car to an older model sports car and go on a holiday to South America - and so I have to set aside money for this.

Be realistic and leave some fat to be wrong

One of the most annoying things about setting financial goals is how often we fall behind on them. This ends up demoralising us and we often lose track of our goals for the year. When you set your goals try and be as realistic as possible - and then leave some fat for you to be wrong. That is - if you are going to err to one side - make it to under-estimating how much you can save and invest and overestimating how much you will spend on personal expenditure.

If you beat these targets you will feel much better about your goals and targets.

Set up a way of tracking your goals

There are plenty of easy ways of tracking your expenditure goals. I have an excel spreadsheet which I update every month which then gives me my performance in both detailed and summary formats (which I then post on this blog).

Having an easy file to update allows you to see how you are going and you can put as much or as little detail as you like. I'm currently building a fairly detailed one which I hope to upload so that you can download it and use it if you like.

Always keep in mind that your goals should not dictate your life

This goes back to the realism point above. You want to be able to stick with these goals for a full year - you do not want to resent them or for them to stop you doing anything that you truly want to do. What they provide is a foundation for making your decisions and quite often it will also stop those impulse buys that so many of us seem to get caught by.

Wednesday, 12 December 2012

This will be a very quick post from me today on how much the new Melbourne public transport system's Myki ticketing system actually ends up costing you as a customer.

It is billed as a way to save you money because the system only charges you the minimum amount required to travel. However unless you have a very predictable travel pattern then this is not the case. Further the fact that it does not work means that you constantly have to fork out an extra $6 for replacement cards while your old card is being replaced.

Myki is inferior to the system it replaced
Myki was an attempt to move Melbourne's public transport system into the 21st century by replacing an old paper based ticketing system (which were dispensed from machines and put through barriers) with a card like system that you see in many other parts in the world (such as London, Hong Kong, Seoul etc).

However, unlike those other systems, the cards totally replace the paper ticketing system. In Hong Kong and Seoul for example, if you are not a regular traveller (or a tourist as I was) you could buy a one trip single ticket or a multi trip ticket without having to pay the fixed price with no credit for the card system. Melbourne scrapped their paper ticketing system so that anyone, even a person just taking a single journey has to buy the (relatively) expensive card and a ticket on top of that.

While the above is annoying I confess that I didn't think about it much because it did not affect me personally. However what does affect me is that the technology is terrible. Putting credit on your card at a station takes an inordinate amount of time - the lines that you see now to add credit at peak times are much longer than what you used to see under the old paper ticket system. I overheard some computer programmers talking about how it was a terrible system and how each of them could have designed a better / faster interface. They raised the very valid point that it should take no longer than using an ATM as it is essentially doing the same task but it actually takes much longer.

Finally - and this is the big problem. The cards simply stop working after a period of time. I was an early adopter of the Myki system and I am currently on my 5th card because they just stop working. I got used to this happening and so carried both my regular Myki and a backup with a bit of credit just in case. Yesterday - BOTH of my cards stopped working. I called the information centre to find out if I was doing something wrong (by keeping it in my wallet etc) however they said that this should not cause an issue.

Myki does not save you money...AND you lose flexibility
The signs promoting the Myki system said that you could save up to $1 per trip. This is very misleading but to understand why you need to understand how the ticket works. You have a choice of two types of cards whenever you buy a Myki

A Myki Money Card: These are basically cash on your card and deduct the lowest possible fair amount up to a daily ticket

A Myki Pass Card: These are for tickets longer than a daily (i.e. a weekly, monthly etc.)

As you buy longer and longer tickets the cost of the ticket gets cheaper (the same way the old metcard system used to work). However if you do not have enough certainty around your travel for the foreseeable future then you get stung.

You can't opt for your card to be a Myki Money card this week (when you are only travelling once or twice) and a Myki Pass card next week (when you have to travel every day). The amount you save is only applicable if you travel the same pattern all the time. I travel fairly regularly and I do not have a set pattern!

While a new system was needed...it was not this one

Melbourne's public transport ticketing system was ageing and did need updating. However this was a system that was ill conceived, over priced and doesn't work. Further customers get screwed and the fines for travelling without a ticket because yours stopped working are unbelievable.

I was a big fan of the system when it was first introduced however after experiencing all the downsides I no longer think it is worth it. The old system worked better, saved you money and headaches. If you are bothered by this send an email to your state government representative and get some interest going in this issue!

Monday, 10 December 2012

Most of us realise that we need to get travel insurance when we travel. Indeed some destinations require appropriate travel insurance before they will issue you a tourist visa and almost all guided tour groups require adequate travel insurance.

However, I think because we often see it as a requirement of travelling (just like a visa) and not a product with pros and cons, we often go for the cheapest option and not the one which is the most appropriate.

Why is travel insurance so important
There are several well know and documented reasons for having travel insurance however there are some areas of coverage that you may not know about (which actually come in useful)

It covers your hospital bill in the event that you get sick overseas

This is the one that everyone knows is important

Hospital and medical cover for citizens is normally subsidised however tourists and foreigners normally cop the full hit. This is definitely the case in Australia where citizens and permanent residents pay virtually nothing for hospital treatments however tourists get charged thousands of dollars for the same operation

This alone makes travel insurance worth it - it is not worth penny pinching on travel insurance (or on a provider that may not pay out) when there is the risk that you may get sick overseas

Friday, 7 December 2012

Recently I heard about a voucher book that has been along for a very long time called The Entertainment Book. Having investigated it very thoroughly, I think this is one of the best ways that people (and families in particular) in Australia can save significant amounts of money from everything to groceries to nights out.

The other added benefit is that the Entertainment Book is sold through schools, charities and local sporting clubs to help raise funds so not only are you saving money but you're helping your local communities as well!

How does it work?
You buy the Entertainment Book from your chosen charity or school or club which costs $55 - $65 depending on the region. The book is regional (i.e. there is one for Melbourne, Sydney, Canberra, Brisbane etc.) so make sure you buy the book that is specific to your location. For exact prices and locations see the following list from the cancer council.

The book has vouchers for different sites and different activities all of which save you money. However this is often hard to navigate (it really is a big book of vouchers) so I prefer to use their website to work out what I want to do. You can search by activity or region.

What is the best way to save money using The Entertainment Book?
The vouchers are not where the real savings are (although they are very good - e.g. 2 for 1 meals at many restaurants). The real savings comes from the ability to buy gift cards from major retailers for a 5% discount.

If you think about how much money you spend on groceries in a year you can savea lot of money just from the discounted grocery gift cards. I did a quick poll of people around my office and this is what I found:

Families typically seem to spend $3,000 - $5,000 a year on groceries (including things like nappies etc for young families)

If you can save 5% of your grocery bill alone then you will be saving ~$150 - $250 just on groceries

This already brings you out ahead on your card.

Assuming you spend $3,000 a year on entertainment (I spend about this as a single person so I can only imagine how much families with children spend) and save 10% - 15% by using the coupons then you are saving another $300 - $450 a year.

Families that are looking for ways to stretch their dollar further or people who just want to get a control of their finances and save some more should really consider this book. This book pays for itself through the discounted gift cards but you can save so much more if you use it efficiently. One person I was talking to (who has 4 children) was saying that it effectively halves the amount he spends on entertainment for his family!

Are there any downsides to The Entertainment Book?

The only big downside is that often people feel uncomfortable using coupons. Some may consider it as 'cheap' to do so and would not want to present one at a nice restaurant. I do not feel this way, neither do the people I talked to but I'm sure others may feel that this is an issue and would be embarrassed to use it.

If you are a person like this you're probably not going to get all you can out of the book however as indicated above it is still worth it for buying your groceries because you are using gift cards not coupons. Gift cards have no stigma attached to them and you are saving 5% every time you go to a supermarket.

Thursday, 6 December 2012

As many college and university graduates would know, one of the hardest things to do once you leave the educational system is to motivate yourself and to find your direction. The 'go getter' attitude that you normally start working with rarely lasts longer than the first year of work and then the malaise often sets in. I have experienced this myself, seen it with almost all of my friends and had comments from readers of this blog about it too.

The good news is that this does not have to be the case - but unlike school, college or university you need to choose your own direction and provide your own motivationto succeed in the work environment. Below are some tips on how you can start taking control of your work life, how to set some goals and how to keep yourself motivated.

Why do graduates get disillusioned so fast after entering the workforce?
In my opinion, graduates get disillusioned very quickly after entering the workforce for several reasons

There is no clear 'end game'

In the education system you know what you are working towards. You know that if you work hard and get good marks in school you will get into the right university and if you work hard and get good marks in university then you have your pick at graduate positions

Unless your organisation is very hierarchical (like an Investment Bank or a Law Firm) where there are constant clear 'next steps' the lack of direction is really confusing for many graduates. They no longer know what they are working towards

They are not getting the constant feedback they are used to

In the education system you are constantly getting both explicit and implied feedback. This is through educator comments and more importantly through marks

For high achievers, not getting anything in the workplace (annual reviews really are a joke most of the time) is quite a disconcerting feeling - you do not know how you are doing

Not knowing how you are doing and whether you are actually doing the right thing is a major reason a lot of people feel 'lost' in the workplace

The external motivation is almost completely removed

Related to the point above the education system provides a lot of external pressures and motivations for you to work hard and succeed

In school the teachers push you very hard and your motivation is almost never internal. In college it is much more internal however there is still implied pressure through the constant grading of papers / exams and the need to work towards the 'end goal' mentioned above

In the work place motivation is almost always completely internal. Most workplaces that take a lot of graduates often start placing external pressure at the start because they know this is an issue however this drops off very quickly and graduates need to completely motivate themselves which is a very new feeling and often is hard to get the hang of

The feeling that you are not completely in control of your own destiny

In the education system it really is a very personalised risk / reward system. If you work hard then your results reflect this. There is a very direct link.

In the workplace it is a lot more subjective. You need other people to recognise what you are doing in order to get ahead

Unfortunately this is the nature of working in organisations however the disconnect between your effort and the perceived end benefit can be very disconcerting until you get used to the idea

I'm sure there are other reasons. If you have any please post them below - I'd love to have a discussion around it.

How can graduates and new employees address these issues and get their mojo back?

In order to get your mojo and lost motivation back there are some things that YOU can do. It is all about internalising those things which have been provided to you in the past. It is about realising that you are now the architect of your destiny. A lot of people are very uncomfortable with this - they seek out mentors because they want someone else to guide them. I think getting advice is fine however if a mentor is used to abdicate personal decision making and responsibility then I think it does more harm than good.

Here are some very definite things that you can do in order to get your motivation back

Work out what you want your end game to be

It does not need to be financial or money or career related. It is about where you want to be in the long run

My personal objectives are very clear on this blog. I know what I want my end game to be financially BUT I also have personal objectives that I want to achieve in my life

These are not fixed objectives and change as I mature

Work backwards from your end objective to what you need to do today

Staying in a tough job becomes easier if you can see that it gets you to the 'next step' in your life plan

At the same time if your current job is not going to get you where you need to go, it provides direction around what type of job you need to get and what experience you need in order to achieve what you want to do

You need to be providing your own feedback while taking advice from others

No one is going to provide you feedback and advice unless you ask for it

Keeping in mind your objectives ask for advice on how you can get to the next stage in your plan

Ask for feedback on how you are doing and be constantly self assessing to see whether you are getting to where you want to be

You need to motivate yourself - this is your life and your life plan

This is one of the hardest things to get used to. Once you get used to the idea however that you are responsible for your own outcomes and you know what you want your outcomes to be the motivation seems to come much easier

Realise what you can and can't change

You can change how you act and react and how hard you work and what sort of relationships you have in the work place

You cant change the nature of people who work together. If you work in a truly toxic workplace then it is probably not helping your end objective but if you think you can get ahead in organisations without learning interpersonal skills then you're going to be constantly disappointed.

Once I started doing the above things I found that a lot of my lost motivation and mojo started to come back. I am not quite as motivated as I would like to be but it is constantly improving and I'm working on it all the time.

Why is being able to calculate type of shareholders useful?
I think there is a value in knowing what sort of shareholders form the shareholder base as an investor. Although you shouldn't put too much weight on this issue it does give you some sort of indication about how the share price moves and how reactive it is to negative sentiment:

Retail shareholders want different things

In the current market environment retail shareholders tend to be very yield focussed at the expense of all other characteristics - in other markets the focus is on growth or on technology. With this focus on yield some stocks will trade well above their fundamental valuations if they have a strong yield and a strong retail shareholder following

Retail shareholders often tend to react more to 'noise'

Although this is a generalisation - retail shareholders (more so than institutions) tend to react to noise and negative sentiment. This is because institutions typically have to be close to fully invested in something while retail shareholders are able to sit in cash

Companies with large retail shareholder bases can have much more volatile share prices as they fall in and out of favour with retail shareholders

Retail shareholders are more loyal to companies 'they know'

Retail shareholders tend to like companies they truly understand (which is definitely a good thing), however what it means is that the valuation of these companies may not fall to a point where it looks like particularly compelling value

Institutional shareholders are more vocal and keep companies 'in line'

Although this is a gross exaggeration, institutions do tend to make their voices heard and companies with large institutional shareholders tend to listen to those shareholders

For this reason institutions often avoid (or allocate a discount to) companies controlled by one person or a family (like News Corp and the Murdochs)

There are many more traits like the ones I've mentioned above and there is no clear way you can benefit from the knowledge - however it will often explain why companies take certain actions or the stock price responds in a certain way. It adds another lens for you to understand your investments and it is so easy to do that you can calculate it in under 5 minutes on your own.

How do you calculate what percentage of shareholders are retail versus institutional?

Note that this example below is for Australian companies. I'm not exactly sure how to calculate it for international companies but there is normally a way to do this from the information provided year to year. I will try and look into this for future posts.

I am using Woolworths as an example. Part of the Annual Report (and sometimes for the interim reports) will always be dedicated to a summary of the shareholders section. For Woolworths I have linked to it here. What you need then is a couple of pieces of information and assumptions

You need the current price of the stock (approximate will do). As at the date of writing this post WOW share price was ~A$30 per share.

You then need to make an assumption around the maximum value of shares that a retail shareholder is likely to hold. I normally assume this is ~$100,000. Retail shareholders are unlikely to hold more than that in a single company

Then you need to look at the ranges of fully paid shareholders. Woolworths breaks theirs up in the following categories

1 - 1,000

1,000 - 5,000

5,000 - 10,000

10,000 - 100,000

100,000 and over

Then assign assumed value ranges to these categories which then makes it

$30 - $30,000

$30,000 - $150,000

$150,00 - $300,000

$300,000 - $3,000,000

$3,000,000 and over

Retail shareholders therefore are going to fall within the first two categories only. I am going to make a simplifying assumption and say that all the people in the first category are retail shareholders.

I then take the number of shares within these categories (103,294,619+273,371,259) and divide it by the total shares outstanding (1,234,216,128) to get the percentage of shareholders which are retail. For Woolworths this comes to 30.5%.

It is very simple to do and can give you an insight into any company you invest in.

Tuesday, 4 December 2012

As with my October 2012 post, this post will only have my performance versus my reset expectations. In this month's post you will see how I have achieved on a cumulative basis) all my goals for the year thus far with the exception of my personal expenditure goals. This may seem strange given I split my income up between the three categories that I track.

However the big impact this month was my tax return and the bonus that was paid to me by my employer. The tax return is something inherently uncertain and I cannot bank on this in any given year - I have discussed more below why this years return was so large. My bonus, however is more stable, and forms a reasonably large part of my compensation. However I prefer not to include this because it tends to fund a lot of my large extra curricular activities such as overseas holidays which I like to do on an annual basis. As I pointed out in my November 2012 net worth post I expect a lot of the bonus amount to be spent in the coming months as I go overseas and buy a new car so the effect of this will be virtually zero.

There were two particularly large impacts this month on my income

My tax return was much larger than expected (~$20,000)

This was due to several factors including paying a higher tax rate at my old employer (an investment bank) as I was earning more and then dropping to a lower tax rate so I got the excess in tax I had paid back

Paying off my HECS debt also reduced the tax rate that I had to pay

I received my bonus for the year

About 40% of this bonus was in deferred compensation and I have included this amount in my share investments. Although I am not entitled to sell them until it vests it still is subject to fluctuations in the share market and I have no intention to move from this job in the near term

If I now look at my 3 accounts in turn:

Share investments

If you look above you will notice that I moved a LOT of money out of my share investment account. This was for several reasons.

A lot of it was sitting in my brokerage cash account and was related to amounts I had transferred into it for the FKP rights issue

I sold out of my employee share plan during the month and this amount was transferred into my home loan offset account (I did a post on this during the month)

However this was offset by the purchase of shares as part of my deferred compensation scheme (mentioned above) and I also continued to participate in my employee share plan

If you look at this account on a cumulative basis it is still well above what my target is (see below)

Home Loan Offset Account

This account was in serious deficit. Look at last month's expenditure tracker and you will see that I had under-invested in this account to the tune of ~$41,000 compared with my goal

However with the transfers from my share accounts, my cash bonus as well as my tax refund this account is well above what my aim for it should be (see the cumulative effect below)

Personal expenditure

I spent a similar amount this month compared with last month which I am pretty happy with. It is rather controlled although I have been putting off several expenditure items including my work clothing which is definitely reaching the end of its life

December 2012 is likely to be a month which sees decreases in my home loan offset account (due to over-saving of my bonus which is likely to be spent) as well as general Christmas gift purchases and holiday spending. I should get more clarity around some of my deferred compensation which may see a step up in the share account.

On a cumulative basis my personal expenditure (versus goals) is as follows:

Monday, 3 December 2012

My net worth performance this month was best in absolute terms since I have started tracking the increases. In % increase terms it is my second best performance however it is from a much higher base which is why the % increase was not as good as the absolute performance. As highlighted in a mid-month post there were several things which drove this result including

Getting my annual bonus

After leaving investment banking my bonus was much lower than in previous years as was to be expected. However I still work in finance so the bonuses are still pretty good and this contributed a significant amount to the uplift in my net worth for the month

Also, as I am earning less and I no longer have a HECS liability the weighted average tax rate I paid on this bonus decreased significantly

A component of this bonus is deferred compensation. Where I have been allocated these shares I have fully valued them however there is another component I have not valued as I have no way of checking how this value moves month to month

Receiving my tax refund

I have been talking about doing my taxes for several months in my net worth and expenditure tracker posts however I finally got down to it this month and received significantly more than I was expecting back on tax (approx $20,000)

I realised some of the gains on my share portfolio

This actually had a negative impact on my net worth

I track the share price movements through my excel file on a month to month basis however there were significant transaction costs associated with selling my employee share plan schemes. For future periods I have found ways of avoiding these costs

My personal expenditure was much higher than usual however this got lost in the noise

I did not control my expenditure as well as I could have this month however because of the big bulky increases mentioned above, a lot of this effect was lost

For December 2012 I actually forecast a decrease in my net worth

I had pre-committed a lot of the amount I received for my bonus so the effects of this increase are going to be quite temporary (which is fairly disappointing because I was very excited to see my net worth go through $300,000 for the first time). Things I had committed to included:

An overseas holiday I am taking in a few weeks. I'm guessing this will cost me about $6,000 including accommodation, spending (I really have to buy new suits while I'm overseas) and entertainment. Note that I paid for the flights several months ago

Christmas presents: There really is no way of getting around this and I wouldn't want to. I really enjoy giving Christmas gifts however it does affect the bottom line. I am budgeting for about $1,000 on gifts.

A sports car. This I mentioned was one of my goals for the year. Although I have not bought it yet I know what I want to get and how much I want to spend. I am planning on spending ~$25,000 on the new car and selling my existing car for about $12,000 so will be out of pocket an extra $13,000

My goal for December 2012 is to keep my net worth above the $300,000 mark and I should be able to manage this given I will still be earning during this time.

Thursday, 29 November 2012

Credit card awards schemes are one of those nice to have features of a credit card however it should not be central in your decision to choose one credit card over another. The fact is that the points are worth so little that unless it is an 'added benefit' for the same cost you probably should not bother.

Most people realise this. Indeed, when post people work out that it costs them ~$14,000 - $18,000 worth of expenditure to get $100 worth of value most people stop worrying about the points and then redeem them every time they realise that they have a decent balance. However although the seem to have such little value, there are still ways you can optimise the value you get from them - also this post is to remind everyone that uses these rewards systems that the points can and do depreciate in value so it is best to use them reasonably quickly.

Gift cards are almost always the best value option
I have done a post on this before which spells this out in more detail but I thought I would outline again why gift cards and vouchers are always the best option. You should never use your points to buy products. Go online and see how much the product actually costs and then work out how many points it is costing you and you will see that it can be double or triple the regular price using your points.

Using your points to get cash is also a terrible idea.The difference in the number of points it takes to get $50 worth of cash versus a $50 gift card to buy groceries is astounding! Getting cash or reduction in your credit card bills are almost as bad value as getting products.

A better way to get the items you want is to redeem your points for gift cards and use these to buy products
If there is a particular product you want then go and see what stores you can buy this item from and get a gift card from that store - it will work out much cheaper than using your points. However if you really want to maximise your points and the value for money you get then you should do the following:

Work out what the cheapest gift card is

Gift cards do not all cost the same amount of points. Cards for supermarkets tend to cost less than cards from other retailers (this is not always the case so make sure you check with your rewards provider)

Buy the cheapest card from a store you regularly go to (it does not have to be the one you want the item from)

If you shop at a particular supermarket often and this has the cheapest card then you should go for this

Alternatively fuel cards are often very cheap as well and if you have a car you are always going to use it

Use the cash you save from this other store to buy the item you want

In this way you are getting the item you want for effectively the best points value that you can get

You tend to get better value when you redeem more points at once...BUT don't wait for too long

With most rewards systems the amount of value you get from gift cards tends to increase the more points you accumulate. Typically speaking if it costs you 8,000 points to get $50 worth of value it should cost you less than 16,000 points to get $100 worth of value.

Credit card companies and rewards programmes do this deliberately for several reasons. Firstly they make more money if they don't have to pay out the cash as often and and secondly every so often they increase the number of points it takes to redeem a certain amount of value so they win when they charge you more points to get the same amount of money.

The best thing for you to do is to strike a compromise. Know how much money you typically spend on a credit card and if it is going to take you an extra year to get from a $250 gift card to a $500 gift card and you are only saving 500 points then it is probably better for you to get a $250 gift card each year. You may lose a little bit in terms of the points it costs you but you have the benefit of getting the first amount earlier and the risk that your points reduce in value is diminished.

Tuesday, 27 November 2012

Recently a reader of this blog asked to me do a post on what the expenses associated with running an investment property were like. This post will deal with that issue.

It will not, however deal with interest expenses. Although this is the biggest expense associated with an investment property it is too hard to generalise about because it all depends on:

How much you pay for the property

What sort of gearing you use (i.e. a higher gearing will result in a higher interest cost)

The interest rate you are charged on the loan

How fast you pay the loan down

All of the above are not related to the property per se but rather with how you finance it and repay your loan.

While other charges will also typically be related to the individual property (e.g. the age of the property and the condition that it is in will determine what your maintenance expenses are) it is much easier to generalise about this and the costs associated with these.

When I discuss the costs below I will talk about them as a percentage of the rent I receive. Note that this is only indicative and what I receive for my investment property and you should remember that every property will be slightly different.

Property management expenses (7% of gross rental)

This amount is a negotiated rate and includes GST. I have posted before on how you can negotiate this rate with your agent down. Note that this is the total amount that I paid to my agent - some people think they are paying a certain percentage but then end up getting stung on things like advertising, leasing and other miscellaneous fees.

Paying between 5.5% and 8% is pretty standard for a property management fee. If you are thinking about investing in property and are looking to add up all the expenses go down to your local real estate agent and find out what they charge. It will always be a percentage of gross rent.

Maintenance expenses (~1%)

This will vary drastically from year to year. I have been pretty lucky, however and have had few issues. This however was a function of the property I bought - I was willing to pay a little more for a property with few issues and then deal with all the relevant problems upfront before I leased it out.

In a previous post I recommend doing all the necessary maintenance up front and working out what can be left for later. If you're thinking about how much maintenance expenses will cost you I would not assume something this low - I would choose a number more like 5% of gross income per annum.

Rates and council fees (~9%)

As a landlord you will be paying the council rates as well as the water rates associated with the property (note that you do not pay for the water usage but rather the connection charges). This will vary from property to property and from council to council. My charges have been pretty steady at 9% so I feel confident using this number to forecast into the future.

If you are thinking about calculating this for yourself remember that your council fees are dependent on the value of your property. If you are buying a high value, low yield property then this charge will be higher as a percentage of rent than if you bought a cheap, high yield property.

I have done posts before on how to negotiate your home insurance and why it increases so much. Modelling for 4% or 5% insurance costs is an appropriate number to use.

Total cash expenses (~21% of gross rent)

My total cash expenses for the last financial year came to 21% of my gross rent. Note that this number is a 'run rate' type of percentage. That is your expenses will typically be much higher in your first year of ownership because you are bringing the property up to scratch and have things like legal fees that increase your expenses

I should re-iterate that your interest cost will totally dominate your expense line. However many people when thinking about property investment totally forget that there are a fair few expenses associated with running it and that you really only have 75% - 80% of your gross rent to help pay it.

Why didn't I include depreciation?

You may have noticed that one of the big expense line items that I didn't include above was depreciation (which for me is ~20% of gross rent). This is because it is a non cash expense - you do not pay anything when you claim it (however you receive the tax benefit of the deduction).

The tax deduction component of depreciation could almost be considered in the income line because you do receive this money back from the government however I have been conservative and not included it.

Last Thursday Woolworth's put the issue to a vote at an Extraordinary General Meeting (which also doubled up with their Annual General Meeting) and the proposal failed. This is not surprising however if you look at the statistics and breakdowns in the vote there are some interesting features.

The proposal was resoundingly defeated by submitted proxies well before the actual vote
If you look at slide 14 of the Woolworths EGM presentation you can see what the status of the vote was before the open votes on the day were cast.

2.47% of the shares voted forthe proposal

95.41% of the shares voted againstthe proposal

3.14% were open to be voted at the general meeting

If you look at the final results (see the final page of this document) you can see that most of the shares voted at the meeting were actually against the proposal. The final count of shareholders voting for and against the GetUp! EGM resolution was:

For: 2.53%

Against: 97.47%

The resounding defeat means that either retail shareholders didn't turn out OR they were against the proposal

There is often the perception by participants in the market place that institutions are somehow more 'ruthless' than individual shareholders. GetUp! made a big play about having motivated the retail shareholder base at Woolworths to vote for the proposal.

Retail shareholders make up approximately 30% of WOW's shareholder base (I will tell you how to calculate this in a later post). As only ~2.5% of shareholders voted for the EGM proposal this means that retail shareholders either voted against the proposal or they simply did not turn up. I have posted before about the apathy of retail shareholders when it comes to voting.

Unfortunately it is hard to see which one of these that it is however it is hard to think of a motion that they are more likely to understand or be encouraged to vote for.

It is unclear whether any institutions voted for the proposal

GetUp! tried to get their members to send letters to their superannuation funds to encourage them to vote for the proposal. Indeed they even had a standard form letter on their website that you could send to them. However based on the vote count it does not look like there are any institutions that voted for the proposal (though I could be wrong).

I find this actually very comforting - I like to think that my superannuation fund would vote in a way which protected allof their security holders and not just the ones who are particularly vocal.

I decided that one mini-crusade that I would go on would be to inform retail shareholders how important their vote was and how they should vote to protect their shareholding. For this first AGM season, therefore I committed to doing my small part and actually voting in every AGM in which I was entitled to and I discovered something - I just did not have a good enough understanding of what I was voting on to care.

Voting on remuneration reports

This is the one area that people typically get worked up about - executives get paid too much money and this is a chance to vote that remuneration report down. However there are several problems

The remuneration reports take a fair bit of effort to go through properly

What you should be interested in is not only the absolute levels of incentives but also how these incentives are structured and how the vesting works for each of these

Most retail investors do not have the knowledge or know how to go through these reports

Even if you do have the knowledge and know how they take a fair bit of effort and if you try and do it for any more than about 5 stocks you typically get bored out of your brain

Typically remuneration report voting is linked to how well the shares have performed NOT how the remuneration is structured

You see this all the time - a company that is performing well can pay their senior management almost anything and incentivize them terribly and shareholders will still vote for the report

Conversely shareholders will vote against a report which compensates managers in an appropriate way if the shares are performing badly

This doesn't make sense but it is the only real option that shareholders often have to vent their frustration at the company

Voting for directors

This is the bit I got most stuck on (and I cared the least about). I simply did not know WHO these directors were, whether they were good or bad, what sort of decisions they voted on and how informed they were.

The strange thing about investing in companies is that you are constantly exposed to the management team - the CEO, CFO and other senior personnel through conference calls, news reports etc but as a shareholder you get no say over the management team. You get to pick the guys who pick the management team however you know nothing about these people and how active they are on the board and how much the actually contribute.

I found myself voting for board members if I liked the senior executives and against them if I didn't. There has to be a better way. Companies should start providing information on what these board members are actually adding.

Thursday, 22 November 2012

Often times as an investor, especially in listed securities, you will find an investment 'going bad'. The market will has significantly against you and the temptation is to cut your losses and get out. This post will be about when to hold your nerve and what you should be telling yourself when your are doing that.

I have posted before about how one of the hardest thing to do as an investor is to sell shares when they have increased in price significantly or very suddenly because greed takes over. This is the converse case - it is about how it is hard to hold onto you shares when fear takes over.

However I should stress from the start that you should not always hold onto your shares. There ARE times when you should cut your losses and get out. There are, however, a very specific set of circumstances in which you should ignore the market and buck the trend

What are the specific circumstances where you should ignore the market?

For you to ignore what is going on in the market, in your own mind you should be very clear about certain things:

Is your valuation of the company up to date and do you believe in it?

This means you should have included ALL relevant information that has been released and you need to be comfortable that your valuation is as accurate as it can be

If you think that you are right and the market is wrong - this is where you can make real profits

What is causing the share price drop and is this relevant?

Share prices fluctuate quite a bit and sometimes they do so for valid reasons (e.g. the company is decreasing in profitability, there is a new, better competitor, they have too much debt) however sometimes it has nothing to do with the company itself (e.g. a company that doesn't have any exposure to Europe falls on concerns about Greek debt)

If it is relevant news (or even rumours) then you should be putting these into your valuations as discussed in point 1. Your valuation is not a static document - it should constantly be updated

What DON'T you know?

The hardest thing about being an outsider investing in a company is that you will never know everything

You always need to consider therefore what may or may not be happening that you do not know

Assuming your valuation is up to date, the factors causing the share price to drop are irrelevant or temporary and you have accounted for those things you don't THEN DON'T SELL

If you have done everything that you can and you trust your valuation and you understand what is moving the share price then you should have the confidence in your own investment analysis to hold out against the market.

The thing about investing is that you have to be able to ignore what is happening day to day with your stock investments. They will go up and down and as long as you are tracking the fundamentals and they still look good to you then you should hold out until your valuation not the market tells you to sell

In these circumstances I have often seen investors double up their bets and take advantage of the lower prices. I am typically not one of those investors. If I still trust my original investment then I stick with that amount.

Note that there is always the risk that you are wrong. There is the risk that there is something that you didn't know that comes and bites you and unfortunately there is nothing you can do about this other than to keep a very close eye on the investments that you do have - especially those that seem under pressure - and constantly be trying to work out what is driving the share price.

Because I have hold periods associated with any stock that I buy, I have been unable to sell these and the stock has dipped well below my average buying price (and the offer price). I have more than I am usually comfortable with invested in this particular stock.

The reason I am holding onto it is as follows (please do not go out and buy this stock because I am saying I think it's good - I'm not giving investment advice - just describing the principle):

I am comfortable with my valuation of the stock and this has not changed as the stock price has been falling

I think I know why the price has fallen so aggressively - I think the underwriters are selling the stock they got issued when FKP screwed their retail shareholders (I hope they are making a loss)

I think there are things I don't know - but I have allowed for those specific items in my valuation

I'll provide an update on how this goes but hopefully the price recovers around the time I want to sell it so I can reduce my exposure a little bit.

Wednesday, 21 November 2012

In a recent post I mentioned that I had been stung pretty badly when selling my employee share plan shares. The operator of the share registry that my company uses knows that most people will sell their shares directly through them and will often charge outrageous fees which employees think that they have to pay. This post will show you how to save a lot of that money.

Who typically gets stung the worst by the share registry fees?
Typically the people that get stung the worst are employees that live in one country but get issued shares in another one (i.e. on a foreign stock exchange). This is pretty common for those working for large US corporations but who do not live in the US.

The shares that are issued to them are typically listed on a US stock exchange and held with a share registry company that specialises in employee share plans. A very common registry for US stocks is BNY Mellon (which is now owned by Computershare).

The fees that a foreign shareholder normally gets stung with include

A transaction (trade) fee: This is normally quite reasonable and everyone gets charged this

A foreign wire transfer fee: This costs $25 and is a little annoying but not over the top

A spread on the foreign currency: This is where they really sting you badly. The rate that BNY gives you is much worse than the actual wholesale rate. In the case of the AUD there was a 2% difference between that rate and the rate they gave me - this meant that I automatically lost 2% of my profits through this cost.

In most cases you will not be able to avoid the first fee and it is a reasonable one to pay however you should NOT be paying the second and third fees (or if you do pay them they should be much lower). Below I have outlined some strategies to save on the fees.

Saving on the foreign currency fee

If you sit back and think about how muchthat foreign currency fee is actually costing you - you will be outraged. If you assume that you are allocated $20,000 of stock in a year (not out of the ball park if you have variable compensation and an employee share plan) and you sell this stock you are getting hit with $400 in foreign currency fees which is outrageous!

Here are some ways to save on the fee charged by these share registries

Do a position transfer to a broker like Interactive Brokers which and sell through them instead - they do not charge an FX spread

What you are doing here is actually transferring the stock itself to Interactive Brokers - you are not selling it through the share registry. This should not cost anything.

Sell the shares through interactive brokers - their trading costs for US stocks are very cheap (generally you want to be trading US stocks through a US broker not through your home country broker)

Interactive Brokers does not charge an FX spread - they charge you a flat percentage of the currency conversion cost which is 1bp - i.e. 0.01%

Instead of paying $400 in currency costs you will therefore only pay $2.50 (the minimum trade value)

Sell the shares through the share registry but set up a multi-currency account

There are some banks (like Citi and HSBC) that offer multi-currency accounts

They also offer exchange rates that are better than those offered by the share registries

You sell the stock through the share registry and then transfer the funds to these accounts to be converted into your home currency

These accounts typically have minimum balances and have reasonably high fees however they are worth considering if you get a lot of stock in foreign currencies or travel a lot

Saving on the wire transfer fee

The wire transfer fee is not a large amount ($25) however it is an annoying amount that I really believe that you should not have to pay. Here are some ways that you can get around it.

Transfer the funds to a US based (multi-currency) account

If you can do an in country bank transfer instead of a wire transfer then you do not have to pay this fee

Multi-currency accounts typically have branches in several countries and so you do not get charged the wire transfer fee for bringing it back to your home country

Use a broker to sell you shares that does not charge a wire transfer fee

Interactive Brokers (mentioned above) does not charge a wire transfer fee for Australian accounts. This is because they have an account based in Australia so what they actually do is an in country bank transfer to your account

Request the proceeds in a check

The share registries normally give you the option to receive your proceeds as a check. If you do this it will take a little longer to get to you but you are not paying a pointless fee to receive it

You can then deposit this into your local bank or your multi-currency account

Tuesday, 20 November 2012

There were several small updates that I've been meaning to write for a while but they have not been sufficiently important for me to dedicate whole posts to so I have decided to do one posts which will cover several of these smaller issues.

Employee share investment plan - shares finally sold

In several of my previous posts I outlined that many companies offer employee share plans to their staff and how it can be a way to make free money. I also had a post in which I said that there were several strategies one could take when it came to selling the shares when they were allocated to you. At the time I had said that I would sell these as soon as they were allocated to me.

In fact I let them run for ~4 months and got a very good return out of doing this (~35%). Where I did get shafted though was on the exchange rate which cost me hundreds of dollars more than it should have. I will do a post on avoiding these exchange rate fees soon.

Annual bonus hit the account - I had already mentally pre-spent the amount so benefit is only passing
In my 2012 financial goals at the start of the year I said that one of my goals was to buy a sports car when I was young and carefree enough to throw away a bit of money. I realised that this would not help me financially however not all things in life can be driven by finance.

Although my bonus was in line with what I expected, I had mentally catered for too much tax so on an after tax basis I actually got more than I expected. In addition I have picked the model / year of car that I want and this was cheaper than I had originally budgeted for too.

I am therefore using the excess as my spending money for my overseas holiday. In my October 2012 net worth post I mentioned that I would need to start putting away money for this but it turns out that I wont have to.

Until I actually spend the money it will appear in my net worth but this is only transitory and will not count in the long run.

Tax return is finally done and MUCH better than expected
I will cover this more thoroughly in my next net worth post however I could not believe the amount I got back on tax (~$20,000) - it turns out that I really did pay too much tax over the year This amount I will save and it is going to increase my net worth over the long run.

I have STILL not started my business
I confess between my last post and this one that I have still not got around to starting my business. Several things (and life) have gotten in the way. It is still one of my goals however I do not have a time frame on it because at the moment I cannot find a decent amount of time to dedicate to it. If this actually gets off the ground in the next few months I will be pleasantly surprised.

Monday, 19 November 2012

NAV, or Net Asset Value is typically a term used in investment funds (both listed and unlisted). It is the assessed value of the funds assets, normally by the management of the company and approved by independent valuers (though not always).

NAV is also sometimes referred to as NTA, or net tangible assets however I think this term is incorrectly used as NTA is used for all types of companies and does not necessarily refer to this independent valuation of assets process

What types of entities disclose NAV?
NAV is typically disclosed where it is hard for investors to see or discern the value of the assets. This is often used for investments where the exact composition of the portfolio is unknown or where the assets are inherently illiquid and so assessing an actual value from regular valuation methods becomes difficult for investors.

There are many types of entities that disclose NAV however some of the most common ones are:

Property trusts (both listed and unlisted)

Property of all types is inherently illiquid. As investors we know that the value of properties are changing however without the full information about all the properties held in the trust it is pretty hard to know how the valuation of these trusts are moving year to year

Property trusts normally revalue their assets on an annual (or sometimes semi annual basis) so that investors know what the theoretical value of the assets within the trust are worth

Equity funds

Equity funds normally disclose their NAV on a daily basis. It is very easy for them to calculate however very hard for outside investors to work out because they do not know the exact composition of the portfolio

For equity funds the NAV represents the valuation of all the shares within the fund (and you divide this by the number of units to get the per unit NAV

Infrastructure funds

Infrastructure funds also typically disclose a NAV for the same reasons as property trusts

They typically hold more than one asset and investors find it hard to value these assets from an external perspective.

Companies with minority stakes in several unlisted assets

Where a company does not have a controlling shareholding in several assets they often disclose NAV because it is almost impossible from regulatory filings and presentations to work out what these assets are worth

External managers are often compensated based on the value of the assets under management. In order for investors to understand the fees being paid to external managers they often provide a valuation of the company and it's assets to justify the fees.

Why do companies trade at a discount or premium to NAV?

For listed funds and companies you will notice that they very rarely trade at NAV (the exception to this is listed equity funds which never really deviate far from NAV). This seems counter intuitive - if you know the value of the assets then why would you see for less than they are worth and conversely why would you buy for more than they are worth?

Friday, 16 November 2012

Click Frenzy is this coming Tuesday starting at 7pm and running for 24 hours. It gives shoppers the opportunity to buy goods at 15 - 90% off (only) for that 24 hour period.

I think this is a great opportunity for everyone to do their Christmas shopping early and in one massive hit and possible get some good deals but you do need to prepare!

What is Click Frenzy?
Click Frenzy is the Australian version of Cyber Monday which was is a US day of crazy online sales where everything online is heavily discounted. It is like the online version of the boxing day sales.

This is the first time it is being done in Australia as Australia has been very far behind in terms of major retailers having an effective web presence and Australians have been much slower than their US counterparts in taking up the online buying phenomenon.

When is it? It starts at 7pm on Tuesday 20 November and runs for 24 hours.

What stores are participating in Click Frenzy?
Not all the major retailers are participating but so far there are a really good list of retailers that are participating including Myer, Dick Smith, Target, Dan Murphys, Masters, Microsoft, Saba and many others.

What should you do before Click Frenzy?
There are several things you should do before the start of the sales. These include

Make sure you have access to a good Internet connection.

My home Internet tends to be extremely slow during times of high use (you wouldn't think that about broadband but unfortunately it is the case) so I am using my corporate connection and will be staying at work.

Work out what you want to buy before the sales

The chances are the stock you want to buy will be relatively limited and if you are going for something popular you want to head there straight away

Make sure you know your prices before Click Frenzy

The worst thing you can do is to buy an over-priced product which has then been nominally marked down so if you have your list of products you want to buy - make sure you know the cheapest price you can get it elsewhere

Know what stores sell the product you want

There are real worries that the Australian retailers' online stores are not up to the volume of traffic that will be received on Tuesday and you want to be able to get into the store you want and purchase your product before it goes down

Are the deals really going to be that good?

This is the big question and the fact is that no one really knows. I think the retailers will offer really really good deals in this first year to hype up the day and get it off the ground so this may be the year where you get the best deals. In any event I have freed up a couple of hours that night and have made my list of things that I want.

Hopefully my Christmas shopping works out a lot cheaper than I had originally budgeted for!

As this AGM gets closer - it is now only a week away (on Thursday 22 November 2012) Woolworths shareholders need to seriously consider how they are going to vote on this issue. There are several things to consider which I have addressed below.

What are the proposals?

There are three proposals being put forward by shareholders that form the vote that will take place at the Extraordinary General Meeting (which is being held at the same time as the Woolworths Annual General Meeting). The proposals are summarised below. It essentially changes the constitution of Woolworths such that from 2016

The company limits it's Electronic Gaming Machines (Poker Machines) to a maximum bet of $1 per push;

Limit the profit each machine can make to $120 per hour; and

The machines are only allowed to operate for 18 hours in any 24 hour period

Is this motion in the best interests of the company and shareholders?
The first thing you need to remember as a shareholder in Woolworths is that this is a real investment for you and this is real money that you stand to gain or lose as a result of this investment. Therefore, while it should not be the only consideration, you need to think about whether voting for this resolution will be good or bad for the company in the long run.

From this framework I would consider the following

Woolworths is naturally going to lose profitability if you limit the money they can make from these poker machines

The argument is that they will get some sort of social benefit, or rather avoid a social cost by being seen as a responsible operator

I do not find it convincing that the benefit (or lack of cost) that they will receive from implementing these measures will outweigh the actual money they will be losing through implementing these measures

I actually find this case analogous to the selling of cigarettes. Everyone knows that smoking is bad for you and creates real social harm however it is a legal thing to do and therefore stores (including Woolworths through their shopping centres) are allowed to sell them as long as they obey the law. The idea that people will not want to invest or shop at a store that operates gaming venues seems strange to me because they are more than happy to invest and shop at one which sells cigarettes.

Will the measures work to stop problem gambling?
In this area I think both sides have been a bit disingenuous. Woolworths has downplayed the Productivity Commission's reports on gambling and in their letter to shareholders was quite misleading on several aspects of this.

However GetUp! is also being a bit sly about it's motives. It keeps talking about how Woolworths is the largest operator of poker machines in Australia, which may be true however they still only have 6% of the market and GetUp! is obviously targeting Woolworths because they are a soft target (unlike a casino or the actual manufacturer of the gaming machines themselves, Aristocrat, which is also a listed company).

I think the reason that GetUp! is targeting Woolworths is because if they can force Woolworths to operate in a certain way then Woolworths will lobby the government to ensure that everyone operates in the same way. There is currently very limited political will to implement such measures and GetUp! wants an influential player pushing for rules they want.

Do I think problem gambling is a problem and do I think this is the solution?
I absolutely do think problem gambling is a problem and although it does not affect a large proportion of the population, it is devastating to those who it does affect.

Having said that - I do not believe this is the solution. I believe that this problem needs to be dealt with by policy makers in this country. I believe that to really tackle the problem that everyone should be playing by the same rules with the aim of reducing problem gambling.

I think that the Woolworths vote will not do anything to curb problem gambling, will cause Woolworths shareholders to be worse off and therefore do not believe shareholders should vote for this measure.

If you have an opinion on this matter or if you think I am wrong please comment below